In a surprise move, the Federal Reserve on Wednesday decided not to pare back the extraordinary stimulus it has pumped into the economy since the 2008 financial crisis, saying it wants to see more evidence that the economy's recent improvement will be sustained.

In a statement after a two-day meeting, the Fed's policymaking committee said it agreed to continue buying $85 billion a month in Treasury bonds and mortgage-backed securities. Most economists surveyed by USA TODAY expected the Fed to reduce the purchases by $6 billion to $15 billion.

"It was a precautionary step," Fed Chairman Ben Bernanke said at a news conference. Fed policymakers, he said, "decided to wait a little longer to make sure the economy is conforming to" their positive economic outlook.

Job growth has fallen the past three months and the housing market's recovery has slowed somewhat amid higher interest rates. Although the unemployment rate has fallen to 7.3% from 8.1% since the Fed began the asset purchases a year ago, Bernanke pointed out a decline last month was due entirely to Americans dropping out of the labor force. Long-term unemployment, he said, remains high.

The labor market "is far from what all of us would like to see," he said.

The Fed also noted that bond yields have risen sharply recently--at least partly because Bernanke for months has been signaling the bond-buying would be cut back this year. It said the tightening of financial conditions," if sustained, could slow the pace of improvement in the economy and labor markets.

The Fed also agreed to keep its benchmark short-term interest rate near zero at least until the unemployment rate falls to 6.5%, as long as projected inflation rate a year or two out remains below 2.5%.

Bernanke has said in recent months that the Fed likely would begin dialing back the bond purchases this year and end them by mid-2014, assuming the economy and job market continue to improve. "The general framework" for that phaseout "is still the same," Bernanke said, with an initial reduction "possibly late this year."

Financial markets largely expected the Fed to announce the start of the tapering at Wednesday's meeting, in part because Bernanke has said the bond purchases likely would end when unemployment falls to 7%.

But he said Wednesday, "There isn't any magic number," adding that policymakers will look at a variety of labor market indicators. He added, "We can't let market expectations dictate our policy actions." Rather, he said, any reduction in purchases will hinge on the economy.

Begun a year ago, the Fed's bond purchases are credited with helping lift stocks and holding down long-term interest rates with the aim of stimulating the economy and job growth.

The Fed on Wednesday also slightly downgraded its economic forecast. It now expects economic growth of 2.3% to 2.6% this year, down from its June projection of 2.3% to 2.8%. For 2014, growth of 2.9% to 3.1% is expected, vs. its prediction of 3.0% to 3.5% in June.

The Fed sees a slightly improved jobs picture. It projects that unemployment, now 7.3%, will be 7.1% to 7.3% by the end of the year and 6.4% to 6.8% by the end of 2014. It previously expected unemployment of 6.5% to 6.8% at the end of next year. By 2016, U.S. should be near full employment, with the jobless rate falling to 5.4% to 5.9% by the end of the year, according to its forecast.

The Fed also expects inflation to be slightly tamer, running 1.3% to 1.8% next year. In June it forecast inflation of 1.4% to 2% in 2014.

Most Fed officials still expect the first hike in the Fed's target short-term interest rate in 2015, and most say the target, now 0 to 0.25%, will rise to as high as 1% in 2015 and as high as 2% in 2016.

But many economists say the program's benefits have steadily diminished while risks such as eventual high inflation have grown.

Since Bernanke began signaling in May that the bond purchases would soon be scaled back, 10-year Treasury yields have risen a percentage point to about 2.85% and 30 year fixed mortgage rates have jumped to 4.57% from 3.51%, damping mortgage applications.